Spain to decide on bailout plea 'after bank surveys'

SPAIN’S GOVERNMENT played down speculation yesterday that it was about to request an international bailout of its struggling financial sector. Contradicting reports citing European Union and German sources that the country will ask for a rescue package this weekend, the administration said it would wait for the results of studies being carried out on the banks before acting.

The International Monetary Fund (IMF) and two independent auditors are carrying out the surveys of Spain’s bank recapitalisation needs. The results of the IMF’s findings are expected as early as Monday, while the auditors’ results are scheduled to be published by June 21st.

“Right now the government is working with the IMF and the evaluators on the amount the financial system needs in order to carry out a clean-up of the sector,” said deputy prime minister Soraya Sáenz de Santamaría in a press conference.

“When we know the figure, the government will make clear its position.”

Santamaría also said she was not aware of a planned conference call between euro-zone finance ministers today, at which a Spanish bailout would purportedly be discussed.

The Spanish economy has come under severe pressure in recent weeks as the extent of its banking problems have become apparent. The sector is plagued with bad assets, a legacy of the property bubble that burst in 2008. In May, the government part-nationalised the country’s fourth-largest lender Bankia, which has been punished on the stock exchange in recent weeks. The bank eventually announced it needed a €19 billion rescue package on top of more than €4 billion in public funds it has already received.

Estimates regarding how much Spain needs to cover its overall bank capitalisation needs range from €40 billion to €100 billion.

The pressure on Spain had eased somewhat on Thursday, as the government successfully auctioned over €2 billion in debt. However, later the same day Fitch agency cut Spain’s credit rating three notches, from A to BBB, just above junk status, and intensifying speculation that a bailout is imminent.

Spain would be the fourth country to receive an EU rescue package after Greece, Ireland and Portugal. However, a potential Spanish bailout is expected to focus specifically on the country’s banks and not include stringent conditions for the government.

The administration of Mariano Rajoy is already implementing a severe and unpopular austerity programme in a bid to slash the public deficit, which stood at nearly 9 per cent of GDP for 2011.

Spain has been lobbying in recent weeks for EU bailout funds to be injected straight into banks, rather than going through national governments as current regulations dictate.

On May 29th, Rajoy categorically denied that there would be a bailout of the Spanish banking sector. However, as the country’s borrowing costs have soared to record levels since then, the government has been less firm in ruling out a rescue.